UK - The Environment Agency's pension fund is reviewing its existing global equity arrangements and creating a new mandate which requires asset managers display strong ESG credentials, in line with its SRI philosophy.
Details of a tender notice issued today reveal the £1.5bn (€2.15bn) fund is searching for one or more managers to handle between £50m and £150m of actively-managed assets, and clearly states appointed managers will be required, in particular, to adhere to corporate governance and environmental overlay strategies.
A spokesman for the pension fund has confirmed this is a new mandate which will be financed by the pension fund's review and rebalancing of its global equity mandates in 2008, as well as through fresh cash injections from inflows elsewhere in the pension fund.
No decision is likely to be made until mid 2008 as to whether Sarasin Chiswell, Capital International and State Street Global Advisors will retain their existing global equity mandates. A manager for this new mandate is then expected to be appointed by August 2008.
But data just published within the Agency pension fund's annual report on the pension fund suggests Capital underperformed its benchmark to the end of the financial year, by delivering a 1.3% return to the fund, while State Street delivered 3% and Sarasin's specialist environmental mandate by 9%.
The Environment Agency has been significant changes to its investment policy and allocation in recent years after the implementation of its environment and social governance (ESG) strategy - a move which has since won the pension fund several awards. (See earlier IPE Story: F&C and Goldman win ESG awards)
Since 2004, the pension fund has reduced its asset allocation from 70% in equities to 68.4% to March 31 2007, and global equities now account for 35% of the fund's total asset allocation.
Further information from the tender notice states there is no real constraint on the strategy managers can adopt to look after the assets which can managed "within an agreed risk budget that might suit a high alpha or moderately unconstrained style", although the pension fund appears to be against the adoption of 1303/30 or hedge fund strategies at this stage.
Managers will be required to outperform their benchmark - which is yet to be revealed but could be traditional or SRI - by a minimum 3% per annum on a rolling 3-yr basis, states the tender note.
The fund's preference is also for positive stock selection rather than negative screening in its ESG strategy, and describes in-house and external company research and engagement on financially-material sustainability and environmental issues "advantageous".
In order to enter the tender process, asset managers are required to produce several written statements concerning varying elements of their investment and ESG strategies along with performance data and documents accompanying the process.
Deadline for applications is January 31 2008.